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Marco is a trader of stocks, options, currencies, and futures. He has been fascinated with the financial markets ever since he bought his first stock at 11 years old. Marco entered the business world at the age of 13, with the creation of an extremely successful retail website... More
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  • Playing More Conservative: 80 ETF Buy-Write Option Strategies 0 comments
    Jun 4, 2009 12:54 AM | about stocks: XLY, XLP, DIA, TYO, TYD, TMV, TMF, DPK, DZK, EDZ, EDC, ERY, ERX, FAZ, FAS, SPXS, SPXL, MIDZ, MIDU, TZA, TNA, TECS, TECL, XLE, XLF, XLI, IYE, IYR, EFA, IWO, IWP, IWR, OEF, IVV, SLV, XLB, MDY, QQQ, RTH, DOG, SEF, PSQ, RWM, SH, JNK, FEZ, GLD, SPY, XME, XES, XRT, XLK, UYM, UCO, DDM, UYG, UGL, UXI, DIG, QLD, URE, UWM, SS

    As posted previously in my blog, ETF's are some of the safest securities to purchase when planning on investing. An even more conservative way to buy ETF's is to write covered calls on them once purchased. Writing call options allows you to get some of your investment back immediately and gives you some downside protection, however if the stock really takes off you cap your upside.

    The buy/write option strategy seems ideal when purchasing diversified ETF's. This is because diversified ETF's are less volatile than purchasing specific stocks (however leveraged ETF's are extremely volatile and as I state here I don't believe are investment vehicles).

    I have put together a list of 80 ETF's (yes 80!) and calculated each of their % probability of expiring above the indicated strike, as well as the % return if they expire above the indicated strike. The list below is sorted alphabetically, and all options are for the July expiration (July 18, 2009). All strike prices are near the money unless indicated they are in the money (IN $).

    Below is a list of the 80 Exchange Traded Funds. (All data priced as of pre-market Thursday June 4, 2009).

    Stock Ticker Strike % Probability % Return  
    Consumer Discret Select Sector SPDR  XLY 24 54.2 4.3 IN $
    Consumer Staples Select Sector SPDR  XLP 24 42.2 3  
    DIAMONDS Trust, Series 1  DIA 88 44.4 3.9  
    Direxion Daily 10 Yr Trsy Bear 3X Shares  TYO 70 61.2 3.2 IN $
    Direxion Daily 10 Yr Trsy Bull 3X Shares  TYD 50 46.5 4.8  
    Direxion Daily 30 Yr Trsy Bear 3X Shares  TMV 85 53.8 9.2  
    Direxion Daily 30 Yr Trsy Bull 3X Shares  TMF 40 50 9.9  
    Direxion Daily Devlpd Mrkts Bear 3X Shrs  DPK 30 61.1 9.7 IN $
    Direxion Daily Devlpd Mrkts Bull 3X Shrs  DZK 55 57.4 12 IN $
    Direxion Daily Emrg Mrkts Bear 3X Shares  EDZ 14 58.7 17.2  
    Direxion Daily Emrg Mrkts Bull 3X Shares  EDC 90 53 17.7  
    Direxion Daily Energy Bear 3X Shares  ERY 20 53.9 15  
    Direxion Daily Energy Bull 3X Shares  ERX 35 58.1 12.7 IN $
    Direxion Daily Financial Bear 3X Shares  FAZ 5 56.3 20.7  
    Direxion Daily Financial Bull 3X Shares  FAS 10 55 18  
    Direxion Daily Large Cap Bear 3X Shares  BGZ 35 53.8 12.3  
    Direxion Daily Large Cap Bull 3X Shares  BGU 35 58.4 9.5 IN $
    Direxion Daily Mid Cap Bear 3X Shares  MWN 30 51.4 12.4  
    Direxion Daily Mid Cap Bull 3X Shares  MWJ 60 60.1 10.5 IN $
    Direxion Daily Small Cap Bear 3X Shares  TZA 22.5 53.2 18  
    Direxion Daily Small Cap Bull 3X Shares  TNA 32 51.2 15.3  
    Direxion Daily Technology Bear 3X Shares  TYP 22.5 58.1 10.8 IN $
    Direxion Daily Technology Bull 3X Shares  TYH 85 55.1 9.7 IN $
    Energy Select Sector SPDR  XLE 53 40.9 6.3  
    Financial Select Sector SPDR  XLF 12 52.4 6.7 IN $
    Industrial Select Sector SPDR  XLI 23 53.2 4.3  
    iShares Dow Jones US Energy  IYE 30 57.4 4.1 IN $
    iShares Dow Jones US Real Estate IYR 35 48.5 7.4  
    iShares MSCI EAFE Index  EFA 48 47.2 4  
    iShares Russell 2000 Growth Index  IWO 59 42.7 5.7  
    iShares Russell Midcap Growth Index  IWP 35 70.5 2.2 IN $
    iShares Russell Midcap Index  IWR 65 60 3 IN $
    iShares S&P 100 Index  OEF 44 46.6 3.4  
    iShares S&P 500 Index  IVV 95 45.5 4  
    iShares Silver Trust  SLV 15 55.9 4.9 IN $
    Materials Select Sector SPDR  XLB 28 43.3 2.6  
    MidCap SPDRs  MDY 110 42.5 5.6  
    PowerShares QQQ  QQQQ 37 44.8 4.9  
    Retail HOLDRs RTH 80 56.9 3.7 IN $
    Short Dow30 ProShares  DOG 66 46.9 4.8  
    Short Financials ProShares  SEF 59 47.6 9  
    Short QQQ ProShares  PSQ 55 63.5 2.8 IN $
    Short Russell2000 ProShares  RWM 55 56.8 4.8 IN $
    Short S&P500 ProShares  SH 66 46.1 4.8  
    SPDR Barclays Capital High Yield Bond  JNK 34 54.5 1.4 IN $
    SPDR DJ EURO STOXX 50  FEZ 36 44.3 4  
    SPDR Gold Shares  GLD 96 45.4 4.7  
    SPDR S&P 500 SPY 95 44.5 4.3  
    SPDR S&P Metals & Mining  XME 40 44.8 10.8  
    SPDR S&P Oil & Gas Equipment & Services  XES 24 52.8 6  
    SPDR S&P Retail  XRT 30 43.5 7.1  
    Technology Select Sector SPDR  XLK 18 50.6 4.1 IN $
    Ultra Basic Materials ProShares  UYM 21 47.1 12.6  
    Ultra DJ-AIG Crude Oil ProShares  UCO 12.5 49.7 12.1  
    Ultra Dow30 ProShares  DDM 31 47.8 7  
    Ultra Financials ProShares  UYG 4 56.5 10.9  
    Ultra Gold ProShares  UGL 37 46.9 8.8  
    Ultra Industrials ProShares  UXI 22.5 43.4 11.5  
    Ultra Oil & Gas ProShares  DIG 31 48.2 10.6  
    Ultra QQQ ProShares  QLD 40 43.1 9.7  
    Ultra Real Estate ProShares  URE 4 56.1 13.5 IN $
    Ultra Russell2000 ProShares  UWM 21 49.3 10  
    Ultra S&P500 ProShares  SSO 28 44.4 9.1  
    Ultra Semiconductor ProShares  USD 20 46.8 11.1  
    Ultra Technology ProShares  ROM 30 59.2 5.7 IN $
    UltraShort Basic Materials ProShares  SMN 17.5 54.8 11.5  
    UltraShort Dow30 ProShares  DXD 46 53.8 7.1  
    UltraShort Financials ProShares  SKF 44 50.7 14.7  
    UltraShort Industrials ProShares  SIJ 40 56.1 7.8 IN $
    UltraShort MidCap400 ProShares  MZZ 38 50.2 10.4  
    UltraShort Oil & Gas ProShares  DUG 18 45.9 12.7  
    UltraShort QQQ ProShares  QID 34 45.3 11  
    UltraShort Real Estate ProShares  SRS 20 50.5 21.5  
    UltraShort Russell2000 ProShares  TWM 42 50.8 11.5  
    UltraShort S&P500 ProShares  SDS 55 51.7 8.4  
    UltraShort Semiconductor ProShares  SSG 40 44.6 15.1  
    UltraShort Technology ProShares  REW 45 41 12.4  
    United States Natural Gas  UNG 15 47.5 12.8  
    United States Oil  USO 37 47.5 7  
    Utilities Select Sector SPDR  XLV 26 52.2 2.6 IN $

    The July options expiration has 44 days left. Some people use the buy/write option strategy to write in the money covered calls and capture a 3% gain. If you write an in the money call every 2 months and happen to be called out every time, this would yield a return of 18% annually, not to mention dividends and capital gains distributions. The likelihood of continuously getting called out month after month is not too realistic, but not impossible either (and of course it depends on both the strike price and stocks volatility). For more information on options pricing, probabilities, and trading click here.

    Among these ETF's are some which are very volatile such as the (TNA) and the (FAS), and some less volatile such as the (DIA) and the (SPY). As you'll see the greater the volatility of the underlying stock, the higher % return. You will also notice calls written in the money have a higher probability of expiring above the indicated strike (this should make sense).

    Of these strategies I am most interested in the: (FAS), (IWJ), and (ERX). For one I am bullish on the underlying stocks (more reasons discussed on my blog), and their return % and probabilities of expiring above the indicated strike are both above the average for my analysis of these 80 ETF's.

    For spreadsheets of these ETF's listed in order from least to greatest % returns, least to greatest % probability of expiring above indicated strike, and the average for both click

    here

    .

    Disclosure: Long DIG, SSO, UYG, FAS, FAZ, TNA, BGZ, UCO

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